India revives energy ties with Iran

New Delhi: In a visible attempt to re-engage with Iranâ€™s energy sector, India has submitted a reworked master development plan for Iranâ€™s Farsi natural gas block.

A consortium led by ONGC Videsh Ltd (OVL), the overseas arm of state-owned Oil and Natural Gas Corp. Ltd, won the bid in 2002, but is yet to develop the gas block.

While OVL is the operator of the Farsi block, in which it holds a 40% stake, Indian Oil Corp. Ltd has an equal stake and the balance 20% is held by Oil India Ltd. The block cannot be developed without a master plan.

The plan, submitted last month, could reduce the countryâ€™s energy risks by diversifying its supplies, but could also cause tension in India-US ties.

India had recently preferred two European companies over US ones in the shortlist for the $10 billion (Rs. 44,600 crore today) jet procurement deal for the Indian Air Force, billed as
Indiaâ€™s biggest defence contract yet. Seattle-based Boeing Co. and the Bethesda, Maryland-based Lockheed Martin Corp., also contenders for the deal, were not among the finalists.

Indian government officials, underlining the countryâ€™s reliance on Iran as an energy partner, have been seeking a more flexible approach from the US and other members of the international community on sanctions against Iran.

Indiaâ€™s action comes against the backdrop of two sets of sanctions imposed in June by the US and United Nations that included strictures against Iranâ€™s energy and banking sectors, which could also hurt firms from other countries doing business with Tehran.

â€œIndia canâ€™t find alternative sources of energy overnight,â€ said a government official, who did not want to be named.

The development plan was prepared with the help of Sydney-headquartered WorleyParsons Ltd. The consortium had earlier submitted a feasibility report to National Iranian Oil Co. (NIOC) in November 2008. The Iranian firm then accepted the commercial viability of gas production at Farsi block, after which the first plan was submitted in April 2009.

â€œWe submitted the (revised) MDP (master development plan) last month. We had earlier submitted it but the Iranians had sought some modifications to it,â€ said the chief executive of one of the consortium partners, who did not want to be named. â€œWe havenâ€™t given up on Iran.â€

Mint reported on 12 January about legal advice sought by OVL cautioning it against proceeding with the Iran projects, providing a test case of how far India is willing to go to accommodate US sensitivities at the cost of its energy security.

â€œIn its quest for energy security, India has been engaging a host of countries, including Iran, which is an important source of hydrocarbon products for us,â€ Vishnu Prakash, spokesperson for the Indian foreign ministry, said in an emailed response. â€œIndiaâ€™s outlook remains unchanged.â€

The investment for exploration and production work will amount to around $5 billion. While the Indian consortium doesnâ€™t have ownership rights, its members will be paid a 15% return on investment they make once they are awarded development rights.

The Farsi block is estimated to have reserves of up to 21.68 trillion cu. ft (tcf), with recoverable reserves of around 12.8 tcf.

â€œThere has been suspended animation on Iran projects. While on the one side, there have been various sanctions in place, on the other, several projects are active, including the ones being undertaken by the Chinese,â€ the chief executive quoted above said. â€œWe donâ€™t want to disengage.â€

NIOC could not be contacted. While Iran embassy officials in New Delhi did not respond to phone calls on Friday, the US embassy did not respond to an email query at the time of going to press.

Iran has the worldâ€™s second largest oil and natural gas reserves. After India and the US signed a civilian nuclear deal in 2008, several Iran-related Indian projects have either been put on hold or dropped.

India and Iran are also trying to resolve an impasse over the method of settlement for bilateral oil trade, after India decided to discontinue payment through the 35-year-old Asian Clearing Union system.

â€œWe seem to have no consistent policy, especially when it comes to Iran (in these matters),â€ said Lydia Powell, head at Centre for Resources Management, at New Delhi-based Observer Research Foundation, a think tank.

Kalim Bahadur, former international studies professor at Jawaharlal Nehru University, sees it as a move by India to diversify its energy sources, given the unrest in West Asia.

â€œI think India is looking for newer energy sources, given that there is so much uncertainty in the Middle East, which has been its traditional source of oil,â€ he said. â€œIf uncertainty persists, oil prices will be affected and could hurt our economy and cause problems. The government seems to be weighing its options.â€